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8:24 AM Friday, December 15, 2017
Finance
IMFs Lagarde Drops Boom on Rada's Anti-Anti-Corruption Fight
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By Volodymyr Verbyany

(Bloomberg) -- The International Monetary Fund urged
Ukraine to end attacks on its anti-graft agencies, joining a
growing chorus of criticism of the country’s reform efforts that
already includes the U.S. and the European Union.
Ukraine’s government and parliament should safeguard the
independence of the National Anti-Corruption Bureau, or NABU,
and the Special Anti-Corruption Prosecutor’s Office, the
Washington-based lender said Thursday. It called on lawmakers to
quickly pass legislation creating an independent anti-graft
court, an issue on which President Petro Poroshenko has flip-
flopped.
“Fighting corruption is a key demand of the Ukrainian
society, is crucial to achieving stronger and equitable growth
and is part of the government’s commitment under the program
with the IMF,” Managing Director Christine Lagarde said in an
emailed statement.
Almost four years after pro-European demonstrators toppled
Ukraine’s Russian-backed leader, reforms are fizzling out,
transparency activists are under attack and law enforcement
agencies are publicly sparring among themselves. The IMF has
delayed transfers from a $17.5 billion bailout as the government
fails to meet its commitments under the program.
The U.S. and the EU said this week that they’re also
concerned about pressure on Ukraine’s anti-corruption bodies.
The State Department warned that such actions risk eroding
international support for the former Soviet republic.

IMF Managing Director Christine Lagarde talks to President Poroshenko last June at the IMF headquarters in Washington (UNIAN/Nikolay Lazarenko)

Anti-Corruption Casualty

Lawmakers on Thursday dismissed Yehor Sobolyev, head of
parliament’s committee on preventing corruption. Sobolyev had
helped push through legislation on illicit wealth and mandatory
electronic assets declarations for officials, a key requirement
for EU visa liberalization and foreign financial aid.
“I’ve never had more important and responsible work in my
life,” Sobolyev, a member of the opposition Samopomich party,
said before the vote. “We created legislation that has
fundamental consequences for Ukraine.”
Hugues Mingarelli, head of the EU delegation to Ukraine,
expressed concerned over Sobolyev’s dismissal. Sobolyev’s
committee did an “impressive job,” he said was quoted by the
Interfax-Ukraine news service as saying.
Even so, a bill backed by members of the ruling coalition
enabling the assembly to fire the heads of Ukraine’s anti-graft
agencies was removed from the agenda overnight. The legislation
would bring “irreversible consequences for the fight against
corruption,” NABU had warned in a statement.

‘Mounting Pressure’

“The ruling party apparently stepped back under mounting
pressure from the West, with the IMF officially joining the U.S.
and the EU in warning Ukrainian leadership against weakening the
independent anti-corruption institutions,” Kiev-based investment
bank Dragon Capital said in an emailed note.
Poroshenko urged parliament to prepare a draft law on the
anti-corruption court on Thursday. If he sees no progress on the
issue by the start of next week, he said he’d prepare
legislation himself.
Parliament also passed a bill extending until 2019 a
moratorium on sales of farmland, a ban the IMF has said Ukraine
should end. The assembly also granted local companies
preferential treatment when they compete in state tenders, a
move First Deputy Economy Minister Maksym Nefyodov said will
curb transparency and encourage corruption, according to
Interfax-Ukraine.

--With assistance from Daryna Krasnolutska.


To contact the reporter on this story:
Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net


Timothy Ash: Anti corruption campaigners managed to get a Rada initiative against NABU pulled overnight. So Western support for NABU seems to have worked.

But there seems to be a regime fight back against the anti corruption agenda more generally.

Terrible for Ukraine’s image outside the country.

Time running out for Poroshenko to prove himself on the anti corruption agenda.


LONDON -- Things looking decidedly shaky on the political front at present in Ukraine.

It is easy to dismiss events playing out on the streets of central Kyiv involving former Georgian President Mikheil Saakashvili, as political theatre, or as some would perhaps describe it as a high wire political circus act.

To many Saakashvili has significantly discredited himself over the past couple of years, and is seen now as a bit of a loose canon, but I would not rule this whole demo/impeachment gig getting some traction and would not rule out a Euromaydan II. I am sure that is not the consensus but neither was it back on 2004 or indeed 2013. It is not my core scenario (might be more like the 2002 tent protests), but 2004 and 2013/14 played out because ruling elites made fatal flaws in managing demonstrations.

Saakashvili is not popular with low single digit ratings - that said no politician polls much above a 10% rating in Ukraine these days. He also seems to be being backed by a hotch potch of anti corruption reformers, populists (Tymoshenko) and opportunists with long standing beef with Poroshenko (Kolomoisky). I also would not rule out Russian interests looking to inflame tensions (those murky Kurchenko tapes need some explanation) - the perception of political turmoil in Ukraine will no doubt play well for Putin in the run up to presidential elections in Russia in March.

Saakashvili has few friends these days in the West - he was never particularly liked in Europe even in his Georgian hay day as he was typically seen as a lose cannon who in miscalculating provoked the war with Russia in 2008 and was also seen as too close to the then Bush administration unpopular in Europe for the disastrous second Gulf war. And more recently he has also burnt his bridges with many in the US administrative either for going against their current man Poroshenko, or Russia (Trump).

But in all this Saakashvili’s anti corruption angle hits a raw nerve with the population as the number one problem currently besetting the country. This comes in a week in which the public Prosecutor, Yuri Lutsenko, is in open warfare now with the anti corruption agency. Indeed, to many it seemed no conincidence that the high profile move to arrest Saakashvili by Ukrainian State security forces (SBU) came as Ukraine’s Prosecutor General’s Office (PGO) was threatening legal action against the leadership of the National Anti Corruption Agency (NABU). Western donors have expressed unease over these actions - and indeed, have now long held concerns over the Poroshenko administation’s real commitment to reining in corruption. And remember that the IMF program and international financing (including EU MFA) to Ukraine is now stalled on this issue. Three and a half years of Poroshenko rule and no one has gone to jail or been brought to account in any way for the Yanukovych era, or corruption then or now.

Worryingly, there is a strong populist/militarist wing in/around the Poroshenko administration which sees the bigger challenge in the fight in the East with Russia, sees the anti corruption agenda as undermining these efforts, and is frustrated that the IMF and other international donors put such store on this issue above all else. I sense this same group are no fans of the IMF programme anyway, and want more economic flexibility in the run up to the 2019 elections to release the fiscal purse strings and pump prime growth. Critics would argue that this group is using the threat of conflict in the East as a cover for corruption, and an unwillingness to do anything to root it out. They actually prefer the status quo as in this tried and tested environment they can financially prosper.

The danger, as we saw in recent days with action against Saakashvili is that Poroshenko mishandles demonstrations, and this leads to popular sympathy for Saakashvili and demos build in scale. Things could get ugly quickly and with plenty of weapons held by the public it might not be very peaceful very long.

Ironically, a silver lining in all this is that Putin will be loving this - he may be promoting it to an extent through his agents in Ukraine. But political chaos and disorder in Ukraine plays well for him in his own elections. That means no need for more near term Russian military intervention in Ukraine. This actually extends the window for Ukraine to get on with reform.

I would not be surprised to see Poroshenko using all this to take out political enemies (Saakashvili would already argue he has been targetted as was Andrey Sadoviy in the Lviv waste scandal) and go for early elections in early 2018. He has a war chest of cash, market access, and just hiked pensions while holding gas prices unchanged against the best advice of the IMF. The longer he leaves all this, the more likely frustration will grow with the tepid State of the economic recovery and failure to hold people to account for corruption.

The problem for the West in all this is they simply don’t know who to back in Ukraine anymore - who are the good guys?

I would argue that the anti corruption agenda should be centre stage - and while we may not agree with Saakashvili‘s tactics he is right for calling out failings therein - and surely the battle between the PGO and NABU is now at a critical point. So the good guys are whoever is fighting the good fight against corruption.

As I have long argued, Ukraine cannot succeed economically unless it addresses corruption head on, as foreign and domestic investment will not flow until rule of law is demonstrated in Ukraine (albeit ironically many argue Saakashvili’s actions themselves are subverting the rule of law he argues he is trying to support). And a strong economy ultimately is the best assurance of sovereignty for Ukraine, against the continued threats in the East.


Timothy Ash is senior sovereign analyst for Blue Bay Asset Management in London.

Posted Dec. 7, 2017

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